Real estate investors -- especially bargain hunters like house flippers -- might be familiar with bargain and sale deeds. That’s because they’re used by banks and governments to transfer property from foreclosures and tax sales. Estate sales sometimes use them, too.
Bargain and sale deeds are most commonly used in Colorado, New York, Vermont, Washington, and Wyoming, and they offer no guarantee that there are no encumbrances on the title to ownership being transferred.
Other people could have a financial stake in that property, but the bank or taxing authority doesn’t know, or if they do, they don’t want to commit, and that’s what they’re telling you by using a bargain and sale deed.
That’s why they use simple terms like "grant, bargain, sell, and convey" or "grantor grants and releases …" and often nothing much more. They’re not confirming or denying the existence of any encumbrances in the form of claims against a property for improvements or repairs, liability for boundary disputes and easements, or lawsuits against the former owners.
Guaranties, warranties, or covenants also are useful terms to know here. They’re interchangeable to a great extent and refer to the guarantees that the grantor -- the party transferring the property -- makes about the title to the property and claims against it.
The need for a deed in real estate deals
First, we should get clear on what a deed is in real estate. There are multiple types but what they have in common is this: "A real estate deed is a legal instrument that, when properly signed and delivered, conveys or a more restrictive interest to specified real estate."
While it’s easy to assume a deed proves you own the property (other than sharing it with the bank, as the old saying goes), they don’t all offer the same level of assurance about the actual title to the real property.
So, what’s the difference between a deed and a title? A title is the legal right to use the property. That’s why a title search is such an important part of the homebuying and financing process. The deed is the evidence that shows that title was transferred from one person or entity to the other.
Now let’s take a look at where a bargain and sale deed fits in.
Bargain and sale in the pantheon of deeds
Each state has its own variations on deeds and titles, so consult with an expert to ensure you know what you’re working with in your own transactions. But, in general, here are some common types of deeds:
General warranty deed. If you’re the buyer, you probably want this. A general warranty deed includes statements from the grantor, the seller, that there are no encumbrances, claims, liens, or any other such issues attached to that property. Then, even if it turns out later there is, you do have the deed in which the grantor says there wasn’t. That’s pretty solid evidence since a deed carries a lot of signatures and a lot of weight.
Statutory warranty deed. In this case, the same assurances exist as in the general warranty deed, only the types of possible issues are not stated explicitly so much but are implied. Statutory refers to the fact they’re codified into state law. Here’s an example from South Carolina.
Limited warranty deed. These also are called special warranty needs. They’re limited in that the grantor only guarantees against claims that occurred while the grantor held the title, not anything that happened when someone else owned it. Foreclosures are a good example of when a limited warranty deed would be used.
Quitclaim deed. A quitclaim deed is often used when there’s no cash involved and no title search needed to prove ownership. Transferring real estate between family members is a good example of when a quitclaim deed might be used. Or it can be used in a fee-simple estate situation, where the grantor is only transferring some of the rights to a property. They also can be used to cure a title defect, such as a misspelled name. Like the bargain and sale deed, the grantor makes no warranties here.
Bargain and sale deed. As stated above, a bargain and sale deed simply guarantees -- provides a warranty -- that the grantor has title to the property but does not guarantee it’s free of claims. If there are any additional guarantees, it becomes a bargain and sale deed with covenants, similar to a special warranty deed.